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Common Minimum Program

Budgets are not made in heaven, at least not for the poor. The unfortunate fact of life is that man-made budgets caters mainly for the rich, the hapless get by with lip-service and a lot of rhetoric force-fed down their throats in lieu of food and water. As someone employing, mostly khaki-collar workers, one can personally vouch that while the raising of the minimum salary to Rs 3000 pm from Rs 2500 pm is extremely welcome, it is not enough. For eking out the most meager existence in the prevailing rate of inflation (State Bank of Pakistan assessed it a double-digit 11% in comparison to the 9.3% claimed by the government), the very minimum a family unit of four requires for survival on the poverty-line is Rs 4000 pm. That is a ground reality as evidenced on hard fact, not based on the theoretical calculations of paper-shufflers confined to their air-conditioned offices who have to rely on inaccurate observations of others, they are fed what they want to hear. The minimum wage must be Rs 4000 pm, the alternative is that millions and millions of our countrymen will keep going deeper into debt (upto 1000 pm) just to stay alive.

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Populist Path

Announced in the National Assembly a few hours after it was deliberately leaked to the media, the thrust of Federal Budget points to a turn to populism. Not going the whole hog points to General Elections not taking place immediately but possibly later in late 2007, i.e. unless something drastic forces an early 2007 date. Predictably govt ministers and officials, as well as those who support the govt and/or have reason to do so, swarmed the electronic and print media to sing the Budget’s praises. Predictably the Opposition opposed it for the sake of opposition, in a singular feat of negative reaction not one soul in the opposition saw even one iota of good in the entire Budget document. Where has objectivity gone?

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A Nation In Crisis

Naeem Bokhari’s open letter to the Chief Justice of the Supreme Court of Pakistan was appalling for several reasons. Firstly, it tarnished the image of a man for whom one has great respect, Justice Iftikhar Chaudhry, and secondly it came from the pen of another man for whom one has great respect. If the facts stated therein are true the letter needed to be written, it should not have been made public. “Excesses” as per Naeem’s letter are commonplace in Pakistan, bringing it to the public domain demeans an Office one should always hold sacred, as much as anything can be held sacred in Pakistan. Triggering an unfortunate sequence of events, which for a time spun out of control, the letter had a backlash of sorts. It enhanced the stature of the man which the letter sought to demean, and tarnished the image of the letter writer, bringing him down many rungs from the pedestal he rightly should be. Naeem Bokhari has class, he is no ordinary known being, the letter going public has made him look us ordinary mortals.

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Largesse At Public Expense

Public sector performance is often associated with indolence, inefficiency corruption, wastage etc, but the public sector still has a major role in the developing economies. Even the first world cannot do without it, in developed economies their public face is disguised better. If every utility or service was left to the mercy of market conditions, a vast mass of the population could not afford it. Because the public sector cannot be entirely eliminated, the pragmatic solution has been to staff entities with successful executives from the private sector, and/or recruit them directly from Business Schools. At times private entrepreneurs also take up management slots in the public sector in trying to turn the corporate entity into economic viability. This is true not only in Pakistan but is the same all over the world, the major examples being in UK and Europe.

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That Davos Spell!

Even the terminally illiterate get under the spell of “the Magic Mountain” towering over Davos. As billed, DAVOS 2007 lived up to its expectations. Maybe a few less Heads of State and Government than is usual, but akin to “combat fatigue” there is “conference overkill.” The World Economic Forum’s (WEF) Annual Event may have been depleted in numbers in the “leadership” category, the deficiency being made up and more by the number of top private entrepreneurs, academics, senior corporate executives, media personalities, NGO’s representatives, etc gracing the ski resort this year.

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Reinforcing Success

Hardly 40 days or so after the Oct 8 earthquake that devastated parts of NWFP and most of AK, pledges of US$ 5.8 billion have been made for the rehabilitation of the affectees, about US$ 600 million more than the estimated amount of US$ 5.198 billion. Nearly US$ 1 billion more is certainly in the pipeline. Nobody should discount the generosity of the world. The International Donor’s Conference on Nov 19 was an outstanding success, the government deserves kudos for having professionally organized the campaign to obtain the necessary funds. Fully US$ 1.8 billion was pledged in outright grants by generous friends led by the US, Saudi Arabia, China etc, the rest was mostly concessional credit on easy terms. Some outstanding debts were also written off. Some muslim countries came to our help despite their own liquidity problems, Turkey stands out. Some extremely affluent muslim countries were a disappointment, par for the course. The richer they are, the more unfeeling they can get.

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Divided We Stand

Events over the past week or so are witness to why the uniform is so important to the President, the ruling PML is a “democratic” house of cards held together by the authority of Pervez Musharraf as the Chief of Army Staff (COAS) Pakistan Army. While not less than 70% of the PML (and allied) parliamentarians have individual political clout in their own constituencies and thus legitimacy on their own steam, almost 30% would never have made it into the Assembles had it not been for those in charge of political manipulations in the ISI and MI, directly under the direction of the COAS. An alliance was cobbled together in 2002 to give legitimacy to our democratic pretensions, if the system has survived until now it is only because the ISI and MI remain Swords of Damocles, without discounting of course the personality of the President as COAS. Seeing the PML edifice in danger, Musharraf called all the faction heads to an enlarged meeting of the PML’s heads on Monday May 16, 2005, ostensibly to discuss the present economic and geo-political situation, mainly to give the “loyal” Parliamentarians a pep talk and paper over the chinks and cracks appearing in the body armour of Pakistan’s ruling party.

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Budget Season is On

n a recent Seminar Mr. Ishaq Dar put Mr. Shaukat Aziz and Dr Ishrat Hussain on the mat about the state of the economy by questioning the policies of the government as well as the statistics given out by the regime. A little more than three years ago, as the Finance Minister of Pakistan, he was engaged in implementing the same policies that every government has been following in fits and starts for the last ten years, the thrust of the airing of statistics was similarly positive. Giving US and Japan as example, Dar said if they had been reducing the budget deficit and debt the way the present regime was doing they would never have prospered. The US had the highest budget deficit in the world and was the largest borrower but still had the strongest economy in the world by far.
The dissemination of “positive” financial information depends upon who is in power, with control over the State media to propagate the “gospel truth”. I personally respect Dar for his integrity (if not his politics of misrouted passion), and agree that macro-political stability is more crucial than economic growth. Addressing the prime bankers of the country, Prime Minister Mir Zafarullah Khan Jamali also agreed in principle as any head of government with a sane head would do. The problem is that politicians as public officials rarely practice what they preach when out of power. Dr Ishrat Hussain, Governor State Bank of Pakistan (SBP), maintains that the culture of “thana, kutchery and tehsil” is sapping the vitality and energy of the nation. The SBP Governor should set an example in self-accountability by making public the statistics of the last five hundred appointments where SBP had either a direct or indirect role to play. SBP selections and appointments would then be tested on a “nepotism, sifarish and corruption” scale. The choice on merit, and merit alone, could act as a role model.
The primary responsibility of the State Bank of Pakistan (SBP) like any Central Bank is to control monetary policy and ensure soundness of financial systems, being provided by regulation and supervision. SBP must promote price stability in the context of micro-economic stability and growth, besides addressing as one of the policy-makers the micro imbalances in the economy which are (1) fiscal deficit (2) balance of payment deficit (3) saving and investment imbalance and (4) unsustainably high rate of increase in prices. SBP Reports tend to be full of data that take away the focus from SBP’s aim, the Reports should concentrate on SBP’s view of micro-economic imbalances and how these can be addressed and reduced, to be made sustainable at a manageable level i.e. fiscal deficit, inflation and balance of payment deficit should be workable and viable. There is no sense for the SBP Report to go out of this framework. The suspicion arises, why this window dressing on an otherwise credible report?
Within this framework we have, viz (1) monetary policy (2) exchange rate policy and (3) promotion of the health of the financial system, financial institutions and financial markets as the primary concerns of the SBP. In its Report the SBP talks only of monetary policy and of other areas but has made major omissions, e.g. the Report does not mention anything about the soundness of the financial system, for instance nothing is told about the outcome of supervision of financial system. The SBP should come out with an Annual and Half-yearly report on the state of affairs in the banking sector exclusively, namely the performance of banks, the quality of regulations, the result of supervision and the future course of the banking industry. This area has been completely neglected by SBP and the emphasis has all along been on micro-economic framework, which again has been combined with excessive data on the areas not directly concerned with the SBP. In the area of monetary policy not much homework seems to have been done. The recent sharp decline in discount rate may have benefited the government in terms of ridiculously low interest on T-bills but it has adversely affected three areas i.e. (1) profitability of SBP (2) of commercial banks and most of all (3) rate of return on deposits. In real terms the rate of return on bank deposits is going to be negative. There is thus a question mark on the advisability of the monetary policy.
It is the Finance Minister’s unenviable job to present the next budget in a Parliament in which a vocal minority is outrightly hostile, he will need a thick skin and a loud voice to keep reading the budget while being drowned out by catcalls of “LFO no, MUSHARRAF go”, i.e. if the present government-opposition parleys are stillborn. To his credit Shaukat Aziz insists that he will ensure availability of credit to business on low rates while removing the irritants faced by them on non-tax matters. That will take some doing. Presently there does not appear to be any serious conflict between various policies, balance of payments is not only viable but we have very comfortable level of Foreign Exchange (FE) Reserves, however this is not the result of present policies but largely of external factors after 9/11 and the policy initiated by former Governor SBP, Dr Mohammad Yaqub, of purchasing FE in the open market. The Rupee counterpart of the re-scheduled debt running to nearly Rs.300 billion has also been used for the improvement of government finances, this means that both the FE and Rupee liabilities have been deferred i.e. the present regime is taking the advantage, subsequent or later regimes/generations will bear the burden, “fly today, pay later!”.
A great deal is being made of the improvement of economic indicators; this is true to the extent of increase of FE reserves. The external sector has become strong as well as viable as a result of four major developments, namely (1) improvement in trade balance (2) benefit of re-schedulement of debt as well as direct assistance following the 9/11 incident (3) impressive increase in home remittances from about US$ 1 billion (2000-2001) to over US$2.4 billion (2001-2002), projecting US$ 4 billion (2002-2003) and (4) finally purchases from market. This has resulted in disappearance of the black market, unification of exchange rates and above all the US Dollar is no longer an alternative asset as it was during the period of FE accounts. One must also note that visibly the external sector has been liberalised. However if we look at such crucial indicators as growth rate in population, rate of national savings stagnating at 13%, increase in percentage of population below the poverty line rising from 29% to 35%, as well as the rising indicators of unemployment, these are not happy indicators. We must be concerned not only with the soundness of an economy over mid and long-term but are factors directly concerned with human welfare.
Mr. Arif Nizami has pointed out in a recent Seminar that the country has had to pay a heavy price to the international financial institutions for the reforms enacted. The Nation’s Editor correctly maintains that the country was on the brink of default and it is necessary to put spending money in the consumer’s pocket to jump-start the economy, to have the courage to do it sooner rather than later. The point arises, do our public officials, both politicians and bureaucrats, have the courage to recognize their failures in human resources management and inconsistent extraneous policies even as they build material resources for the State? Or are they simply engaged in making this nation wealthy at the cost of beggaring the nation’s population?

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A Time for Decision

The more endearing features of the Musharraf regime are its relative transparency and patience when compared to previous military and civilian regimes over the past 50 years and so. For a nation that is generally pessimistic about promises made, indeed cynical about the rhetoric that goes with it, someone actually keeping to the pledges made, is a novelty. Military regimes and a free press have never co-existed in history, the present Pakistani example of maintaining a honeymoon of sorts, is rather difficult to comprehend for most observers, friend and foe alike. As the clock winds down to October 2002, this liberalism on the part of the uniformed ones will be severely tested, particularly by the dual personalities who will have something to hide.

The President’s sincerity in unveiling a roadmap for a return to democracy has been tarnished somewhat by the conduct of the Local Bodies elections. The military regime’s detractors point to ham-handed manipulations as evidence of the military’s ill-intentions, to stage-manage a controlled democracy rather than seemingly allow the unfettered type that had brought us close to apocalypse. If ever “the doctrine of necessity” needed to be applied, “ground zero” was Pakistan in October 1999. One can understand the military’s apprehensions about returning to the bad old ways, but one cannot correct the system by imitating the perpetrators of wrongdoing and misconduct.

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Budget Dynamics

When all the hyperbole and semantics of stabilization and growth are done, Pakistan’s many problems can be traced back to one basic issue, poor revenue collection. What would happen if all of a sudden Pakistanis decided to pay even 30% of what they are supposed to pay in taxes? To start with there would be no Budget deficit, what to talk about meeting the gap by begging for loans. Then, we would be able to pay back some of the hefty debt (and commensurate interest thereof) we have managed to acquire in a dozen or so “democratic” years, successive Finance Ministers running from pillar to post to acquire even more debt to pay for the servicing alone what to talk of returning the principal amounts due. We would then be able to allocate a substantial sum for upgrading/modernizing the socio-economic infrastructure which is falling apart fairly rapidly. Next, more money would be allocated for development expenditure, giving priority to those areas which are still living in the dark ages even in the new millennium. In a country where the main business of government is business instead of governance and the biggest employer at all levels is government, the increased cash flow into the economy will force-multiply the economic opportunities — that in turn, along with a myriad more pluses, would allow the government to decrease taxes and thus increase the revenue collection. This is the stuff dreams are made of, being an incurable optimist and with a genial nature that does not accept reverse as a permanent feature, Shaukat Aziz, Pakistan’s Finance Minister for the past two budgets, must be dreaming this recurring dream. And what would happen if the revenues doubled to 60%? Fantasy?

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